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Markets back on track after
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Global Market Perspective | Q2 2016
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Global Market Perspective, Second Quarter 2016
Global Market Perspective
Contents
Markets Back on Track after Jittery First Quarter .......................................................................................................... 3
Global Economy ................................................................................................................................................................ 6
Real Estate Capital Markets ............................................................................................................................................. 8
Investment Volumes............................................................................................................................................................ 8
Capital Values and Yields ................................................................................................................................................. 13
Corporate Occupiers ...................................................................................................................................................... 14
Global Real Estate Health Monitor................................................................................................................................. 16
Office Markets ................................................................................................................................................................. 17
Office Demand Dynamics ................................................................................................................................................. 17
Office Supply Trends......................................................................................................................................................... 20
Office Rental Trends ......................................................................................................................................................... 24
Retail Markets .................................................................................................................................................................. 27
Industrial Warehousing Markets .................................................................................................................................... 29
Hotel Markets................................................................................................................................................................... 30
Residential Markets ........................................................................................................................................................ 33
Key Investment Transactions in Q1 2016 ..................................................................................................................... 35
Illustrative Office Occupational Transactions in Q1 2016 ........................................................................................... 39
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved
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Global Market Perspective, Second Quarter 2016
Markets Back on Track after Jittery First Quarter
Occupational and investment markets rebounding from cautious start to 2016
The world’s dominant commercial real estate markets appear to be back on track following a jittery start to the year.
Stock market volatility, heightened global economic uncertainty and concerns over a China slowdown certainly made
investors and corporate occupiers think more carefully in Q1; but, by and large, decisions were being delayed rather
than postponed. Recovery in investor sentiment since the mid-February low has been swift and there remains a huge
amount of capital targeting real estate assets. Meanwhile leasing markets held up reasonably well during the quarter,
and with sentiment improving, corporate activity is likely to ramp up during the course of the year.
Direct Commercial Real Estate Investment, 2006-2016
US$ billions
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 (F)
-5%
800
700
600
500
400
-5-0%
-10%
300
-5-10%
200
100
0
Americas
xx%
EMEA
Asia Pacific
Global
Projected Change, 2015-2016
Source: JLL, May 2016
Heightened volatility impacts investor activity
The heightened levels of volatility and risk aversion experienced in the first 4-5 weeks of 2016 combined with what is
usually the quietest quarter of the year to make the results for Q1 2016 look quite weak, with volumes down 14% yearon-year. Nonetheless, recovery has been particularly rapid; equity markets are back to November 2015 levels and credit
spreads have narrowed again. A sizeable amount of capital remains unspent across all investor types and we expect
this to be deployed as we move through the year. With political uncertainty set to continue, from Chinese regulators to
UK referendums and U.S. elections, JLL anticipates full-year 2016 activity to be broadly in line with 2015, with a central
scenario indicating that volumes could be about 5% lower.
Global office leasing volumes hold up despite uncertainty
Momentum in the leasing markets slowed moderately in Q1 2016 as occupiers carefully reconsidered relocation and
expansionary plans, with leasing volumes marginally lower (-1%) on a year-on-year basis. Volumes in both Europe and
Asia Pacific held up well during Q1 2016, increasing by 14% and 7% respectively year-on-year. Leasing volumes in the
United States fell by 10% year-on-year to the lowest level since the Global Financial Crisis as concerns over the
economy’s stability grew.
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Global Market Perspective, Second Quarter 2016
Technology and financial services continue to shape demand across all three global regions. Technology hotbeds from
Silicon Valley and Seattle, to Stockholm, Berlin and Bengaluru have registered the strongest corporate demand.
Meanwhile, e-commerce firms have been active in the office leasing markets in several emerging economies such as
India, China and Indonesia.
In the context of a weaker-than-expected first quarter, we have revised down our global projections for the full-year 2016
and now forecast leasing volumes to broadly match 2015 levels, with some upside potential of up to 5%. Asia Pacific is
projected to outperform the other regions, with volumes growing by around 10%-15% in 2016.
millions sq m
Global Office Demand – Gross Leasing Trends, 2012-2016
42
41
40
Projection
39
38
37
36
35
2012
2013
2014
2015
2016
24 markets in Europe; 44 markets in the U.S; select markets in Asia Pacific
Source: JLL, May 2016
Global vacancy rates edge upwards, but rental growth continues at a healthy clip
The global office vacancy rate has edged up slightly for the first time since 2012, rising by 10 basis points to 12.2%. The
vacancy rate is expected to hover at around 12% for the remainder of the year, with falls in the U.S. rate balanced by a
modest rise in vacancy in Asia Pacific. Vacancy is anticipated to be broadly stable in Europe.
Despite a slightly more subdued picture for global office demand during the first quarter, supply shortages and limited
new deliveries have kept the leasing environment highly competitive in many of the world’s leading office markets, with
prime office rents across 26 major markets increasing by a healthy 4.4% year-on-year in Q1 2016. A pace of about 3%4% rental growth is likely to be maintained during 2016.
Consumer confidence fuels retail sales growth
Strong consumer confidence and resilient retail sales growth are contributing to healthy demand in the U.S., Europe and
selectively in Asia Pacific. Demand has exceeded supply in the past four quarters in the U.S., with several standout
markets witnessing conditions typical of a peaking market. Meanwhile, Dublin and UK markets registered the strongest
rental growth over Q1 in Europe, while increases were also seen in Spain’s leading cities. In Asia Pacific the demand
picture remains mixed, with robust retailer demand in China’s Tier 1 markets and in Tokyo’s prime shopping areas,
although rental levels have been stable in most regional markets over the quarter.
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Global Market Perspective, Second Quarter 2016
Realignment of logistics networks boosts demand
Supply chain redesigns to support omni-channel retail concepts and to further shorten customer delivery times are
continuing to boost global warehousing demand. In the U.S., absorption is still outpacing new supply, with the national
vacancy rate at a 15-year low. Similarly, ongoing vigorous occupier demand in Europe is anticipated to result in take-up
volumes remaining at 2015’s record levels. In Asia Pacific, third-party logistics providers, e-commerce retailers and
manufacturers are bolstering demand and rental growth in China and Tokyo.
Global hotel investment subdued after stellar 2015
Global hotel transactions activity was subdued during Q1 2016 compared to the stellar levels seen in early 2015, with
deal volumes declining by 58% year-on-year. With investor sentiment showing renewed signs of strengthening,
transactions activity in Q2 is expected to pick up and the second half of 2016 stands to be very busy. Overall, volumes
will be less frothy in 2016 but core investors will feel more comfortable given that some transactions and valuations in
2015 had moved ahead of market fundamentals.
U.S. rental apartments see surge in rental growth
Rental growth accelerated meaningfully in the U.S. multifamily market in Q1 to its highest pace this cycle despite a
modest increase in the national vacancy rate on the back of an expanding development pipeline. Institutional investment
markets started the year on a quiet note in Europe, with Germany calmer after a record year for transaction volumes in
2015 and the UK market impacted by uncertainty around Brexit and government policy, although there was an increase
in sales activity in the Netherlands. In Asia, an accommodative policy stance provided support for strong sales activity
in China’s Tier 1 markets, while sales volumes also grew in Singapore.
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Global Market Perspective, Second Quarter 2016
Global Economy
Conditions stabilise in mid-Q1, though downside concerns persist
Markets were extremely volatile at the start of the year as concerns about another world economic slowdown mounted.
Steep falls in share prices seemed to be signalling impending recession, but a solid rally has been seen since midFebruary fuelled by speculation about further monetary stimulus. The freefall in oil prices has also been arrested,
though with supply still plentiful, the price has failed to move consistently above US$40pb. With market turbulence
easing and prices back to the levels of last autumn again, attention is turning to the real economic effects.
Asia was a major concern last quarter, most notably the impact of China’s slowdown. But Japan aside, downgrades to
growth have been modest so far. China’s progress remains critical for both regional and global fortunes, so it is
encouraging that the economy is stabilising according to the latest sentiment indicators. This suggests that recent
government stimulus may be having an effect, although this has also rekindled worries about the property market. By
contrast, the U.S. forecast for the current year has been fairly sharply downgraded after a weak Q4 2015 and a sluggish
start to 2016. The data has improved more recently and most economists project a strong through-year performance,
but it means that growth in 2016 will now struggle even to match the mediocre performance of the last two years.
Europe has been the laggard in the current recovery, and anxiety about its fragility in the face of external developments
has been supported by forecast changes. In the Eurozone, both France and Germany have been downgraded thanks
largely to poor Q4 2015 net trade. The UK has also been edged lower for similar economic reasons, and its external
worries are being increasingly compounded by political risks. The announcement of a June date for the UK’s EU
referendum has at least removed uncertainty about timing. Polling remains finely balanced, but sharp movements in
sterling suggest there is still considerable market unease about the impact of a potential Brexit.
GDP Projections for 2016 in Major Economies – Recent Movements
Australia
China
France
Germany
India
Japan
UK
U.S.
January
2.8
6.3
1.5
2.2
7.4
1.1
2.4
2.6
April (Latest)
2.8
6.5
1.4
1.7
7.4
0.5
2.1
2.0
Change (bps)
0
+20
-10
-50
0
-60
-30
-60
Source: Oxford Economics, April 2016
Central Banks search for new stimulus
Residual concerns about inflation have disappeared, with the renewed global instability replaced by apprehension about
what policymakers can do to prevent another slowdown. Seven years of special monetary measures have brought only
a patchy global recovery, and with interest rates still close to zero in the developed world, conventional options are now
limited.
Although the consensus is that the U.S. will raise interest rates again later this year, the Fed is not rushing to follow last
year’s move. Elsewhere, rate rises look further away than ever with Central Banks pondering new methods to boost
activity. One radical remedy suggested for the more fragile economies is negative interest rates. These are a reality in
Japan – now two decades into a low-growth deflationary trough - while the ECB also pushed its deposit rates further into
negative territory during March as well as ramping up its QE programme.
Amid increased concern about the recovery, a flight from risk has sent bond markets back to historic lows, with 10-year
bund rates edging close to zero again. The monetary environment is an essential component of the real estate outlook.
Ultra-low rates further extend the broad benefits for higher yielding assets and raise the potential of yield-led capital
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved
6
Global Market Perspective, Second Quarter 2016
growth, if investors feel the change will last. But, in the short term at least, the uncertain macroeconomic consequences
and concerns about the implications for leasing demand are likely to outweigh these benefits.
Global demand lift-off postponed (again)
Since our last review, expectations for the current year have been downgraded, largely owing to a softening in the
outlook for the developed world. These economies had been steadily recovering, but progress is now forecast to slow in
2016, reinforcing the weakness already projected for the emerging markets. As a result, global GDP is now anticipated
to only match last year’s outturn and it is not until 2017-2018 before the upward momentum resumes. This would mean
that the global economy has been flat-lining at slightly below trend activity rates since 2011.
Asia Pacific is likely to maintain its position as the most dynamic region globally. Active policy is expected to allow a soft
landing in China, though the deceleration will take growth rates to 6.2% by next year, their lowest since 1990.
Meanwhile, India is predicted to remain the fastest-growing Asian market, provided there is no slackening of reform and
modernisation of the economy. In contrast, Japan has been further hit by slowing exports and weak domestic demand.
Hopes that further monetary stimulus would spark an upturn in Japan are fading, leaving growth forecasts languishing
below 1% for the next two years.
After a run of poor data around the turn of this year, recent U.S. numbers have improved, but not enough to reverse a
slide in prospects for 2016. Weakness in the country’s export sectors and the impact of a tightening monetary stance
are seen as the main headwinds, offsetting improvements from job creation and income growth. A gradual pickup
through the year is projected to deliver GDP growth of 2%, which remains below par by U.S. historical standards, but in
line with other developed economies.
The encouraging European recovery is expected to continue, but at a slower rate than previously expected. In the
Eurozone core, growth remains modest, but domestic demand is forecast to continue to edge higher this year, with
Germany and France reviving. Outside the Eurozone, prospects have generally been more robust. But the UK
economy had a slightly disappointing 2015 and the EU vote is casting a cloud over near-term prospects. Oxford
Economics’ forecasts assume that the UK stays in and any economic disruption is both mild and short-lived. This is not
a certainty, however, and the concern is that a vote for Brexit could trigger a significant negative shock to the European
economy at a critical moment.
Global Outlook, GDP Change, 2015-2017
2015
2016
2017
Global
3.0
3.0
3.5
Asia Pacific
5.3
5.3
5.2
Australia
2.5
2.8
2.9
China
6.9
6.5
6.2
India
7.3
7.4
7.2
Japan
0.5
0.5
0.3
1.5
1.0
2.2
2.4
2.0
2.4
MENA
2.0
2.4
2.9
Europe
2.1
2.0
2.1
France
1.2
1.4
1.7
Germany
1.5
1.7
1.9
UK
2.3
2.1
2.3
Americas
U.S.
Source: Oxford Economics, April 2016
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Global Market Perspective, Second Quarter 2016
Real Estate Capital Markets
Investment Volumes
Quarter of two halves gets 2016 off to a slow start
It was inevitable that the marked increase in capital markets volatility we saw at the beginning of the year would impact
transactional volumes, as it had done at the end of 2015. However, the speed of decline has accelerated since Q4 2015
when year-on-year volumes were 8% lower. In Q1 2016, global activity totalled US$133 billion, 14% lower than a year
ago and the weakest start to a year since 2013. However, we should remember that Q1 2015 was the strongest start to
a year in this cycle. The slowdown is global with all regions lower and currency fluctuations have lessened.
U.S. activity takes a breath, but sentiment remains positive
Regional volumes in the Americas were down 16% year-on-year at US$61 billion in the first quarter with the U.S.
mirroring this fall-off in activity. CMBS spreads and swaps rates peaked in mid-February but have since declined,
encouraging activity and a more positive sentiment in the second half of the quarter. Elsewhere in the region Canadian
volumes were more or less flat but activity in Latin America was exceptionally weak at just US$210 million across the
markets we cover.
Politics will haunt Europe for the first half of 2016
It is perhaps a surprise that European volumes have dropped by just 15% year-on-year to US$48 billion in the first
quarter, given the tepid economic recovery and political issues hanging over the continent. The UK and Spain are in the
eye of the storm politically at present, and investment activity has reflected this nervousness with volumes down 34%
and 28% respectively. French volumes were also down by 24%, whereas Germany performed better with a fall of just
8%. There were other bright spots though, with volumes rising in the Nordics, Benelux and the CEE.
Mixed picture in Asia Pacific as biggest markets move in opposite directions
Asia Pacific volumes for the first quarter were 5% lower on 12 months ago at US$24 billion. Activity was quite divergent
across the region; Australia, China and Hong Kong were higher than a year ago, while Japan was 26% lower. Activity
in South Korea bounced back from Q1 2015, whereas Singapore had one of its weakest quarters on record at just
short of US$700 million. Most of the region’s emerging markets registered lower volumes.
In line with 2015 is probably the best we can hope for in 2016
The heightened levels of volatility and risk aversion experienced in the first 4-5 weeks of 2016 combined with what is
always the quietest quarter of the year to make the results for Q1 2016 look quite weak. Nonetheless, recovery has
been particularly rapid; equity markets are back to November 2015 levels and credit spreads have narrowed again. A
sizeable amount of capital remains unspent across all investor types and we expect this to be deployed as we move
through the year. Politics looks set to form the major backdrop in 2016 from Chinese regulators to UK referendums and
U.S. elections; their impact on real estate is difficult to predict especially if the outcomes remain unclear. Uncertainty
usually results in a slowing of market activity, which we are already witnessing in the UK and with Chinese outbound
activity. However, politics also has the potential to spur activity and, at this point, we expect 2016 activity to be broadly
in line with 2015, with a central scenario indicating that volumes could be about 5% lower.
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Global Market Perspective, Second Quarter 2016
Direct Commercial Real Estate Investment – Regional Volumes, 2014-2016
US$ Billions
Americas
EMEA
Asia Pacific
TOTAL
Q4 15
85
90
36
211
Q1 16
61
48
24
133
% change
Q4 15-Q1 16
-28%
-47%
-34%
-37%
Q1 15
73
57
25
154
% change
Q1 15-Q1 16
-16%
-15%
-5%
-14%
2014
302
279
131
711
2015
314
267
123
704
% change
2014-2015
4%
-4%
-6%
-1%
2015
293.7
94.1
34.0
50.6
27.8
21.4
12.0
27.7
11.1
14.8
8.0
8.2
9.7
4.6
11.3
8.1
3.8
2.8
% change
2014-2015
9%
-12%
-22%
9%
-16%
-20%
66%
44%
-25%
-22%
-26%
16%
-1%
56%
84%
-15%
14%
44%
Source: JLL, May 2016
Direct Commercial Real Estate Investment – Largest Markets, 2014-2016
$US Billions
U.S.
UK
Japan
Germany
France
Australia
Hong Kong
China
Sweden
Canada
South Korea
Italy
Spain
Finland
Norway
Netherlands
Denmark
Russia
Q4 15
77.8
27.6
5.8
15.4
11.1
6.5
4.5
10.5
3.4
4.7
2.3
2.5
2.4
1.8
6.2
3.6
0.5
1.0
Q1 16
58.5
15.4
9.6
8.5
3.7
3.3
2.9
2.8
2.7
2.6
2.3
2.2
1.9
1.7
1.5
1.5
1.3
1.3
% change
Q4 15-Q1 16
-25%
-44%
65%
-45%
-67%
-49%
-36%
-73%
-22%
-44%
-1%
-11%
-20%
-5%
-75%
-59%
151%
28%
Q1 15
69.5
23.3
12.9
9.3
4.9
2.5
1.0
2.6
1.8
2.6
0.7
2.3
2.7
0.3
1.9
0.7
1.5
0.4
% change
Q1 15-Q1 16
-16%
-34%
-26%
-8%
-24%
32%
186%
10%
47%
1%
207%
-3%
-28%
491%
-17%
117%
-13%
209%
2014
269.1
106.6
43.4
46.3
33.1
26.8
7.2
19.2
14.8
19.0
10.8
7.0
9.8
2.9
6.2
9.5
3.3
1.9
Source: JLL, May 2016
REGIONS IN FOCUS
Transactions momentum slips in Americas, but sentiment remains positive
Amidst the global financial market turmoil and generally heightened investor caution over the first couple of months of
2016, first quarter volumes for the Americas were down on a year-on-year basis, declining by 16% to US$61 billion. The
decrease was nearly identical for the U.S. with a 16% fall to US$58 billion. Although regional volumes have declined
year-on-year, this compares to strong activity in Q1 2015 which saw the greatest Q1 volume to-date in the cycle. With
global financial markets having already largely recovered, impressive pools of equity from institutional, private equity
fund and overseas capital seeking placement in the asset class are anticipated to keep transaction values robust and
pricing high. In addition, property income yield spreads over benchmark ‘risk-free’ Treasury yields are now even more
attractive than prior to the volatile start to the year, as a relative shortage of such ‘safe assets’ globally has driven longterm U.S. interest rates downwards. This should provide a further boost to investor demand for property and we now
expect total full-year 2016 volumes for the Americas to be just shy of the record mark established in 2015.
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Global Market Perspective, Second Quarter 2016
Robust capital inflows to U.S. cities
Following a very strong 2015, U.S. cities continued to dominate the top global investment destinations in Q1 2016. New
York took the premier position with volumes of US$9.9 billion, although this is down 24% on the same period a year
earlier. U.S. secondary markets also generated significant activity, with Denver, Philadelphia and San Diego all
registering growth in transaction volumes. Los Angeles, which saw activity increase by 54% on Q1 2015, and London
made up the top three global destinations with volumes of US$6.1 billion and US$5.8 billion respectively.
Direct Commercial Real Estate Investment, Top 20 Cities, Q1 2016
New York
Los Angeles
London
Washington DC
Hong Kong
Tokyo
Seoul
Denver
Paris
Boston
Seattle
Philadelphia
Chicago
Stockholm
Toronto
Sydney
Shanghai
San Diego
Chiba
Oakland
Americas
EMEA
Asia Pacific
US$ billions
0
2
4
6
8
10
Source: JLL, May 2016
Investment in EMEA takes a pause after a strong 2015
EMEA investment volumes in Q1 2016 slipped to US$48 billion, representing a 15% fall on Q1 2015 in US$ terms and a
47% fall on Q4 2015. It is worth noting that the close to 50% decline in quarter-on-quarter volumes across the region
comes off the back of very strong investment flows for the final quarter of 2015 of over US$90 billion. Nonetheless, it is
fair to say that the volumes do reflect a somewhat more cautious sentiment in the market, driven by volatile global equity
markets at the start of the year, concerns over a slowdown in China and the reciprocal impact on European demand,
combined with the looming question of the UK’s continued role in Europe.
UK lags, though France and Germany also slip
All of the top three European markets saw weaker volumes, with the year-on-year decline in the UK of 34% to US$15.4
billion being the largest of the group. Clearly the question of Brexit has been a major sentiment driver, though London,
as a centre for global trade, has also imported a degree of uncertainty from the apparent slowdown in Chinese demand.
Germany saw volumes slip by just 8% to US$8.5 billion, while France, which had a particularly strong Q4 2015,
recorded volumes of US$3.7 billion, which reflects a 24% drop on Q1 2015.
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Global Market Perspective, Second Quarter 2016
Nordics and Benelux record solid growth, while Southern Europe declines
The Nordics registered a pick-up in volumes over the quarter, supported by particularly strong activity in Finland which
was up almost 500% against the same period last year with US$1.7 billion of investment transactions. Sweden, which
saw US$2.7 billion of investment activity, recorded year-on-year volume growth of 47%. In the Benelux countries, Q1
volumes were up 27% year-on-year, though this was largely down to a very strong quarter in the Netherlands where
volumes rose by 117% to US$1.5 billion. Meanwhile, Southern Europe witnessed a 5% decrease across the region
compared to the same quarter last year. Spain, which comprises one-third of the sub-region’s volumes, led the decline
with a 28% year-on-year fall.
Intra-regional buyers increasingly active within the Asia Pacific region
Investment volumes across Asia Pacific started the year on a slightly more subdued note, with Q1 2016 transaction
volumes coming in at US$24 billion, down 5% on the same quarter a year ago. Cross-border investors remained
active on both sides of the ledger in Q1, accounting for 22% of total investment volumes. Intra-regional purchaser
capital flow within Asia Pacific was almost four times higher than inter-regional, due largely to a shift towards
investors focusing on markets closer to home in light of economic uncertainty.
Liquidity in the market is slowing, possibly due to weaker global economic growth conditions and record high pricing
even as most Asia Pacific countries are still in expansionary monetary policy mode, with Japan recently surprising the
market with a negative interest rates policy. The start of gradual U.S. interest rate normalisation could see a shift in
global capital flow dynamics and new assets coming to market, as cyclical investors take profits while longer-term
income-seeking investors take new positions.
Strong start for Australia, while several years of elevated investment activity dries up supply in Japan
Transaction volumes in Australia reached US$3.3 billion in Q1 2016, up 33% year-on-year. Overseas investors, in
particular from Asia Pacific, continue to be attracted to Australia due to its high-quality assets and above-average
yield spread. By contrast, transaction volumes in Japan fell 26% year-on-year to US$9.6 billion. Although
transactional activity by J-REITs rebounded for the quarter, a lack of single large asset deals continues to weigh on
investment volumes. With little evidence of an improving economic outlook and the yen climbing to its highest level
against the U.S. dollar since 2014, the Bank of Japan may potentially push interest rates further into negative territory.
As such, we expect steady demand from both domestic and international investors in 2016, supported by low cost of
borrowing and a good yield spread.
Investors will continue to seek core stabilised assets in China
China recorded US$2.8 billion worth of transaction volumes in the first quarter, up 10% year-on-year. The result was
despite a relative lack of willing sellers, as well as the real estate investment market became increasingly polarised
between Tier 1 and Tier 2 cities. Institutional investors are continuing to seek core stabilised assets in major cities,
which are hard to come by given strong rental growth and a record year of investment in 2015. Looking ahead, there
may be greater diversity of transactions as opportunistic investors look for assets in other asset classes or seek
distressed assets in secondary markets.
Hong Kong begins year strongly, while Singapore and India register falls
Investment activity in Hong Kong more than doubled year-on-year to US$2.9 billion in the first quarter of 2016, as the
appetite of Chinese investors showed no signs of abating after setting record transaction pricing in 2015. Meanwhile,
Singapore ended Q1 on a subdued note, recording US$0.7 billion in transaction volumes, down 66% on Q1 2015, with
a lack of big-ticket transactions for the quarter as increasing vacancies and record new completions weighed down
investor sentiment. Elsewhere, India’s investment volumes fell by 19% year-on-year to US$0.7 billion due to a lack of
available quality assets as investors look towards development and debt products to gain exposure to the real estate
sector.
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11
Global Market Perspective, Second Quarter 2016
US$ billions
Direct Commercial Real Estate Investment – Quarterly Trends, 2007-2016
240
210
228
211
205 204
190
180
166
163
159
146
150
120 118
120
119
113 110 107
100
100
90
211
174
170
169
154
143
133
124
110
100
108
91
73
66 66 66 69
60
41 43
35
30
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Q111
Q211
Q311
Q411
Q112
Q212
Q312
Q412
Q113
Q213
Q313
Q413
Q114
Q214
Q314
Q414
Q115
Q215
Q315
Q415
Q116
0
Americas
EMEA
Asia Pacific
Rolling Four-Quarter Average
Source: JLL, May 2016
Europe
Brussels
Frankfurt
London
Madrid
Milan
Moscow
Paris
Stockholm
Americas
Boston
Chicago
Los Angeles
New York
San Francisco
Toronto
Washington DC
Sao Paulo
Mexico City
Asia Pacific
Prime Office Yield Shift, Q1 2015-Q1 2016
Beijing
Hong Kong
Mumbai
Seoul
Shanghai
Singapore
Sydney
Tokyo
-100
Q4 2015 - Q1 2016
Q1 2015 - Q3 2015
Basis point change
-50
0
50
Source: JLL, May 2016
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12
Global Market Perspective, Second Quarter 2016
Capital Values and Yields
Yield compression maintained despite investor caution
In the majority of major office markets, yields have remained stable, but the direction of travel is still downwards with the
mean prime office yield (across 21 major office markets) compressing to 4.8%, down 20 basis points on a year ago.
Europe registered yield compression in several markets during Q1 2016 including Stockholm (-25 basis points), Madrid
(-25), Brussels (-10) and Milan (-10).
Capital appreciation expected to slow in 2016
Capital value appreciation on prime assets (across 26 markets) has held broadly steady at 8.7% year-on-year. There
has been particularly strong capital appreciation over the past 12 months in Stockholm (+33.5%), Madrid (+26.8%),
Dubai (+20%), Sydney (+18.3%), Los Angeles (+16.0%) and Tokyo (+15.1%)
Annual capital appreciation is expected to slow to about 4% in 2016, driven primarily by income growth. In Europe, star
capital value performers this year are likely to be Madrid, Stockholm and Brussels. Tokyo and Sydney should top the
performance ranks in Asia Pacific, while Boston, Chicago, Los Angeles and San Francisco are projected to
outperform in the Americas.
Prime Office Yields, 2007-2016
Mean Prime Office Yields*
%
7.2
6.87%
6.7
6.2
5.7
5.49%
5.2
4.80%
4.7
bps
70
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016
50
30
10
-10
-30
Yield Compression (bps)
*Across 21 Major Office Markets
Source: JLL, May 2016
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13
Global Market Perspective, Second Quarter 2016
Corporate Occupiers
Occupier activity robust despite caution
Despite the considerable stock market and macroeconomic volatility seen in the first quarter, corporate occupiers
continued to be active in many major global markets. However, while aggregate leasing levels were still robust, there
was evidence of caution among corporate occupiers in leading markets including New York, London, Singapore and
Beijing.
Earnings growth and expansion is being seen in a wide range of industries; however pressures remain to drive efficiency
from real estate. The financial services sector is focused on consolidation and rationalisation of its foot print in global
hubs with nearshoring, cost reduction and workplace optimisation initiatives high on the agenda. The energy sector is
also experiencing continued pressure from low oil prices, which is resulting in portfolio reviews, cost reduction initiatives
and asset monetisation programmes.
Corporate decision-making on hold in selected markets
In Asia Pacific, the slowdown in China impacted sentiment and corporate decision-making in Q1 2016. This led to some
signs of greater hesitancy and protracted time frames for strategic real estate decisions. International companies in
China are currently focused on cost efficiency and portfolio optimisation, particularly in Tier 1 cities. Singapore, and to a
lesser extent Hong Kong, have also experienced hesitancy and lower levels of demand for space.
A slight softening in the PMI and in corporate confidence indicators did not slow occupier activity in mainland Europe.
However, there were some signs that the UK referendum on EU membership was impacting corporate occupier
decision-making. This aligns with a recent JLL survey of corporate occupier clients which showed that 33% of
respondents would consider putting UK leasing decisions on hold until after the referendum.
The occupier markets across the U.S. started 2016 with activity that was strong, albeit slightly slower than in prior
quarters. In general, occupiers are expanding more cautiously. 54% of U.S. tenants are maintaining their existing
footprint going forward, rather than expanding any further. This more conservative approach could be related to the
slowing profits in large corporations, and may also be a sign of the holding pattern that we often see in election years.
Technology transforming real estate requirements
Technology-enabled workplaces are becoming more common across the globe. In the U.S., research on the budgets of
clients’ interior build-outs are showing very interesting results, with IT costs as a proportion of overall construction
budgets increasing rapidly from around 5% of overall construction budgets over the last 10 years. More recent build-out
budgets show the expansion of IT services from cabling and wiring to more than a dozen items for technology, including
access devices, infrastructure, mobility, connectivity, data security systems, wireless connections and upgrades,
business-specific apps, company-specific conferencing and presentation capabilities. All of these items can add up to
35% or more of a budget for a truly technology-focused company.
We see this theme in every tenant build-out today, from traditional law firms, to new campuses built by companies like
Facebook and Apple. The aesthetics and prestige of an office, which were formerly the primary considerations, are
beginning to take a back seat to the technology and the connectivity within buildings.
Growing focus on flexible working solutions
A growing corporate focus on co-working initiatives was also notable in Q1 in many markets across the globe. Originally
a workplace format favoured by start-ups and SME’s, larger organisations are increasingly looking to capture some of
the innovation and flexibility benefits co-working solutions can bring. We expect continued focus and strategy refinement
in this area throughout 2016 as organisations explore the best models to adopt.
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14
Global Market Perspective, Second Quarter 2016
Global Office Market Conditions Matrix*, 2016-2018
Market
2016
2017
2018
Market
2016
2017
2018
Market
MARKET
Chicago
Brussels
Beijing
Los Angeles
Frankfurt
Hong Kong
New York
London (West End)
Mumbai
San Francisco
Madrid
Shanghai
(CBD Overall)
Toronto
Moscow
Singapore
Washington DC
Paris
Sydney
Mexico City
Stockholm
Tokyo
Sao Paulo
Dubai
2016
2017
2018
Tenant Favourable
Neutral Market
Landlord Favourable
* Relates to conditions in the overall office market of a city. Conditions for prime CBD space may differ from the above.
Source: JLL, May 2016
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15
Global Market Perspective, Second Quarter 2016
Global Real Estate Health Monitor
Economy
Metro
Area
GDP
Real Estate Investment Markets
OECD
Leading
Indicator
City
Investment
Volumes
Capital
Value
Change
Prime
Yield
Real Estate Occupier Markets
Yield Gap
Rental
Net
Change Absorption
Vacancy
Rate
Supply
Pipeline
Beijing
6.9%
-0.1
37%
4.0%
6.3%
342
4.0%
3.3%
2.6%
13.3%
Boston
2.9%
-0.1
-15%
10.8%
3.8%
199
8.0%
1.5%
13.9%
2.5%
Chicago
2.6%
-0.1
-5%
7.6%
4.6%
199
3.1%
2.1%
14.5%
1.5%
Dubai
4.1%
na
98%
20.0%
7.5%
na
20.0%
na
17.0%
8.3%
Frankfurt
2.2%
-0.1
-26%
4.3%
4.4%
421
4.3%
0.4%
8.9%
1.8%
Hong Kong
2.5%
na
92%
6.3%
3.2%
178
14.7%
3.2%
3.3%
4.4%
London
3.4%
-0.1
-36%
9.4%
3.5%
209
2.1%
2.9%
3.3%
5.3%
Los Angeles
2.6%
-0.1
18%
16.0%
4.2%
199
13.3%
1.5%
15.0%
1.0%
Madrid
3.2%
0.0
-36%
26.8%
4.0%
255
6.8%
1.7%
10.5%
1.4%
Mexico City
3.4%
0.1
-98%
-4.6%
7.4%
136
-3.3%
4.0%
14.0%
19.2%
Milan
1.6%
0.0
0%
11.4%
4.4%
316
4.3%
0.7%
13.2%
2.6%
Moscow
-1.5%
-0.4
74%
-4.8%
10.5%
123
-4.8%
5.5%
15.9%
8.3%
Mumbai
7.4%
0.1
226%
1.0%
9.8%
216
-1.0%
7.2%
19.5%
14.4%
New York
2.8%
-0.1
4%
4.4%
3.3%
199
1.3%
0.0%
10.0%
1.0%
Paris
1.7%
0.0
-14%
9.9%
3.3%
284
2.1%
0.3%
7.3%
3.5%
San
Francisco
3.0%
-0.1
-53%
9.8%
3.5%
199
9.8%
2.6%
8.2%
5.3%
Sao Paulo
-3.3%
-0.1
-79%
-9.3%
9.8%
406
-9.3%
0.0%
21.5%
13.5%
Seoul
2.8%
0.0
-1%
4.7%
4.6%
282
1.3%
0.3%
10.8%
3.2%
Shanghai
6.1%
-0.1
65%
13.4%
5.8%
342
9.9%
17.7%
9.4%
38.1%
Singapore
2.5%
na
-36%
-9.1%
3.9%
194
-15.7%
-0.3%
5.0%
11.4%
Stockholm
3.4%
0.1
-9%
33.5%
3.8%
324
17.8%
2.7%
7.8%
1.3%
Sydney
2.7%
0.0
-31%
18.3%
5.5%
287
15.7%
2.2%
7.7%
3.7%
Tokyo
2.0%
-0.1
-65%
15.1%
3.0%
303
6.1%
4.1%
2.3%
9.2%
Toronto
2.8%
-0.1
2%
14.6%
4.6%
342
3.3%
0.5%
9.8%
2.4%
Washington
DC
2.7%
-0.1
-13%
3.9%
4.1%
199
1.5%
0.7%
17.3%
1.5%
Real estate data as at end Q1 2016
Definitions and Sources
Metro Area GDP: Change in Real GDP. Metropolitan Area Projection, 2016. Source: Oxford Economics
OECD Leading Indicator: Composite Leading Indicator. Change in Index. Latest Month. Source: OECD
City Investment Volumes: Direct Commercial Real Estate Volumes. Metro Area Data. Rolling Annual Change. Source: JLL
Capital Value Change: Notional Prime Office Capital Values. Year-on-Year Change. Latest Quarter. Source: JLL
Prime Yield: Indicative Yield on Prime/Grade-A Offices. Latest Quarter. Source: JLL
Yield Gap: Basis Points that Prime Office Yields are above or below 10-year Government Bond Yields. Latest Quarter. Source: JLL, Datastream
Rental Change: Prime Office Rents. Year-on-Year Change. Latest Quarter. Source: JLL
Net Absorption: Annual Net Absorption as % of Occupied Office Stock. Rolling Annual. Source: JLL
Vacancy Rate: Metro Area Office Vacancy Rate. Latest Quarter. Source: JLL
Supply Pipeline: Metro Area Office Completions (2016-2017) as % of Existing Stock. Source: JLL
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16
Global Market Perspective, Second Quarter 2016
Office Markets
Office Demand Dynamics
Office Demand
Leasing market momentum falters in the first quarter…
Global economic uncertainty, which set off a stock market decline early in the New Year, shifted business sentiment
during the quarter from one of heightened optimism to one of increased caution. As a result, momentum in the leasing
markets slowed moderately in Q1 2016 as occupiers carefully reconsidered relocation and expansionary plans.
…but overall volumes hold up reasonably well, despite uncertainty
The first quarter is traditionally the quietest of the year, so leasing volumes in Q1 2016 were down (-23%) on a
particularly strong Q4 2015, but on a year-on-year basis volumes were only marginally lower (-1%). Moreover, leasing
volumes in both Europe and Asia Pacific held up well during Q1 2016, increasing by 14% and 7% respectively year-onyear. Leasing levels in the United States fell by 10% year-on-year to their lowest since the Global Financial Crisis as
concerns over the economy’s stability grew. But with fears of a recession now diminished, leasing activity is expected to
ramp up over the course of the year.
Technology, finance and outsourcing lead demand
Technology and financial services continue to shape demand across all three global regions. Technology hotbeds from
Silicon Valley and Seattle, to Stockholm, Berlin and Bengaluru have registered the strongest corporate demand.
Meanwhile e-commerce firms have been active in the office leasing markets in several emerging economies such as
India, China and Indonesia.
Global leasing volumes in 2016 expected to match 2015 levels
In the context of a weaker-than-expected first quarter, we have revised down our global projections for the full-year 2016
and now forecast leasing volumes to broadly match 2015 levels, with some upside potential of up to 5%:

Asia Pacific is expected to outperform the other regions, with leasing volumes growing by around 10%-15% in
2016, supported by robust outsourcing markets and the continued strength of domestic occupiers in China.

Leasing markets in the U.S. are predicted to recover their strength following a particularly weak first quarter,
with full-year 2016 volumes at least matching the robust 2015 level.

We expect European leasing volumes to continue to hold up in 2016. Our current forecast is for a 5%-10%
decrease, but on the back of the strong activity recorded at the start of the year there is some upside potential.
Momentum falters temporarily in the U.S.
Fear of a near-term recession spooked many U.S. tenants in the first quarter and, as a result, expansion plans were put
on hold. Nevertheless, many corporates are still keen to move in order to accommodate record-level employment and
changing workplace preferences.

Overall leasing activity across the U.S. was dominated by technology and financial services firms in the first
quarter. Tech-rich markets such as Seattle, Silicon Valley and Austin saw the strongest net absorption, with
many of the largest technology companies like Facebook, LinkedIn, Microsoft and Oracle moving forward with
expansion plans.
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17
Global Market Perspective, Second Quarter 2016

Most telling of the current office market trends in the U.S., however, is the continued expansion of shared office
space. WeWork and Regus were very active during the quarter, as were several smaller players.

The Greater New York region registered substantial occupancy losses, with several large, planned vacancies
hitting the New York market during the quarter, while New Jersey also recorded significant negative net
absorption.
Q1 leasing volumes in Europe at their strongest since 2011
Q1 2016 saw a continued improvement in occupier market activity across most of Europe, with office leasing volumes
totalling 2.65 million square metres, up 14% year-on-year and the strongest first quarter since 2011:

Germany was again the star performer in Europe. The combined Q1 take-up for its five largest markets was
16% higher year-on-year. Berlin continues to be one of the key outperformers with volumes more than double
the 10-year average, while Frankfurt, which has so far lagged the other key cities, experienced a strong start to
the year.

Leasing volumes in Paris during Q1 increased by 19% on Q1 2015. The continued increase in occupier
requirements and overall demand for office space point towards a more sustained market recovery, after a
relatively lacklustre performance in 2013-2014.

Meanwhile, office take-up in London increased by 2% year-on-year. However, there has been a dip in take-up
in the City submarket, which is likely to continue into Q2 as space under offer has decreased over the last six
months. London’s overall volumes for the full-year 2016 are likely to be lower than the near-record levels of
2015.

In Madrid and Barcelona, transaction levels tailed off somewhat in Q1 after the spike in demand at year-end,
while Amsterdam recorded a slow start to the year. Aside from these markets the overall trend in leasing
activity across Europe is up, with other noteworthy Q1 performances including: Brussels (+53%), Dublin
(+43%), Budapest (+37%) and Stockholm (+34%).
Asian markets hold up relatively well, but Australia has a weak quarter
In Asia Pacific, gross leasing activity was up 7% year-on-year in Q1 2016:

Strongest leasing activity in Q1 was found in Bengaluru, Tokyo, Delhi and Manila. Bengaluru saw the highest
leasing volumes in Asia Pacific on the back of big-ticket transactions, while Tokyo saw good pre-commitments
on upcoming supply.

While demand has softened in some emerging Southeast Asian economies, supply shocks in the oil and gas
industry have had a greater impact on Grade A office markets than a slowing Chinese economy.

New leasing was down in Beijing and Shanghai, partly due to the timing of new supply and less available
space. Otherwise, demand for office space in China’s Tier 1 markets was largely sustained despite slowing
growth in the country’s economy.

However, effects are being felt elsewhere in the region with the resources-centric economies in some
Australian cities suffering from China’s slowdown. Australia’s leasing volumes in Q1 dropped by 24% year-onyear, with all markets down except Melbourne. Demand in Sydney remained healthy, underpinned by
education and IT sectors; however, activity by the tech sector was less than a year earlier and this contributed
to lower volumes.
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18
Global Market Perspective, Second Quarter 2016
millions sqm
Global Office Demand – Gross Leasing Trends, 2012-2016
11.0
10.5
10.0
9.5
9.0
8.5
8.0
7.5
7.0
Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116
24 markets in Europe; 44 markets in the U.S.; select markets in Asia Pacific
Source: JLL, May 2016
millions sq m
Global Office Demand – Gross Leasing Trends, 2012-2016
42
41
40
Projection
39
38
37
36
35
2012
2013
2014
2015
2016
24 markets in Europe; 44 markets in the U.S; select markets in Asia Pacific
Source: JLL, May 2016
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19
Global Market Perspective, Second Quarter 2016
Office Supply Trends
Office Construction
Development cycle peaks, but supply pipeline is under control
At a global level, 2016 is expected to represent the peak of the office development cycle with 16.8 million square metres
of new deliveries anticipated. Current projections suggest that completions will then diminish to around 15.8 million
square metres by 2018. As we have highlighted in previous reviews, these levels are still well below the previous
development peaks of 2001 and 2008.
Robust fundamentals are encouraging developer activity in the U.S.
During the first quarter, total U.S. development volumes increased to 9 million square metres. This marks the highest
level of development thus far in the cycle, as consistent expansionary activity has encouraged developers to break
ground where supply constraints persist. Nonetheless, development remains below the previous two peaks (at nearly 13
million square metres in 2000 and 10 million square metres in 2008).
Despite improved fundamentals in most U.S. office markets, many secondary and tertiary markets have minimal new
supply and, where development is underway, high pre-leasing rates have reduced the relief to supply that tenants are
seeking.
Office construction in Europe remains below-trend
Across Europe, around 750,000 square metres of new office space was completed in Q1 2016, of which 40% was
located in Paris and London. While Q1 2016 office completions were up 25% year-on-year, overall deliveries for the
full-year 2016, at 4.8 million square metres, should be below the 10-year average
Some concerns have been voiced around the development pipeline in London. While speculative construction
continues to increase, new space is usually being absorbed ahead of completion. The 1.2 million square metres of
office space due to be completed in 2016-2017 might push up vacancy rates slightly, but no supply shock is expected.
In Germany, around 1 million square metres of office space is due to be added in the five largest office markets in 2016.
While this is up 23% on the 10-year average, this is unlikely to push up vacancy rates; in fact, given high levels of
demand, vacancy rates are more likely to fall across most German cities.
Healthy office supply additions in Asia, but pre-leases help ease impact
Asia Pacific stock additions are expected to hit a peak of nearly 7 million square metres in 2016, with more than half
recorded in India and China. Pre-commitments continue to mitigate the effect of new supply on vacancy rates in several
markets.
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20
Global Market Perspective, Second Quarter 2016
millions sq m
Global Office Completions, 2000-2018
20
U.S.
15
Europe
Asia Pacific
Average
10
5
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
(F) (F) (F)
24 markets in Europe; 25 markets in Asia Pacific; 44 markets in the U.S. Asia relates to Grade A only.
Source: JLL, May 2016
Office Supply Pipeline – Major Markets, 2016-2017
Shanghai
Mexico City
Mumbai
Sao Paulo
Beijing
Singapore
Tokyo
Moscow
Dubai
London
San Francisco
Hong Kong
Sydney
Paris
Brussels
Seoul
Milan
Boston
Toronto
Frankfurt
Washington DC
Chicago
Madrid
Stockholm
Los Angeles
New York
2017
2016
Completions as % of existing stock
0
5
10
15
20
25
30
35
40
45
Covers all office sub-markets in each city. Tokyo – CBD - 5 kus
Source: JLL, May 2016
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21
Global Market Perspective, Second Quarter 2016
Office Vacancy
Global vacancy rates edge upwards
The global office vacancy rate has edged up slightly for the first time since 2012, rising by 10 basis points to 12.2%.
This is largely due to marginal increases in the Americas (to 14.7%) and Asia Pacific (to 10.9%). Meanwhile the vacancy
rate has continued its steady decline in Europe (to 8.6%).
The global office vacancy rate is expected to hover at around 12% for the remainder of the year, with falls in the U.S.
vacancy rate balanced by a modest rise in Asia Pacific to around 11.7%. Vacancy is expected to be broadly stable in
Europe.
New deliveries in U.S. push up national vacancy rate
During the first quarter, new office deliveries in the U.S. outpaced the rate of occupancy growth, pushing the overall
national vacancy rate up by 10 basis points to 14.8%. This was especially evident in Dallas, Houston, Philadelphia
and Silicon Valley. For the full-year 2016 however, national occupancy growth is expected to outpace new supply, with
more than half of the pipeline already pre-leased.
Demand for both quality and location remain high on the list of must-haves for occupiers. Nearly a dozen CBD markets
posted vacancy rates below 10% in the first quarter including New York (Midtown South), Seattle, San Francisco,
Philadelphia and Boston.
European office vacancy drops to 8.6%, the lowest rate since Q1 2009
The office vacancy rate in Europe dropped by 10 basis points in Q1 2016 to 8.6%, the lowest level since Q1 2009.
Development completions in 2016 should remain well below the 10-year average, negating any potential for an increase
in the regional vacancy rate. In fact, many European office markets are expected to tighten further in 2016.
Asia Pacific vacancy edging up
Pre-commitments continue to mitigate the effects on vacancy of high levels of new supply in several Asia Pacific
markets. Even so, the regional vacancy rate is edging up and is expected to push towards 11.7% by the end of the year
from 10.9% currently. Supply is still very tight in Beijing (2.6% vacancy rate), Hong Kong (3.3%) and Tokyo (2.3%),
while vacancy is falling in Shanghai (9.4%).
Latin America cities face significant new supply
In Sao Paulo, a combination of weak net absorption and additional new supply has kept the vacancy rate in excess of
20% for the past two years; however, rates fell by 200 basis points in Q1 2016 to 21.5%, the first significant fall since
2010.
In Mexico City, the historically high supply pipeline is taking a toll on overall market conditions, as the total vacancy rate
increased 100 basis points to 14% during the first quarter. Although demand from tenants is stable, the sizeable pipeline
should continue to push up vacancy rates over the next one to two years.
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22
Global Market Perspective, Second Quarter 2016
Office Vacancy Rates in Major Markets, Q1 2016
Global 12.2%
Europe 8.6%
Americas 14.7%
Asia Pacific 10.9%
25%
20%
15%
10%
Quarterly movement
5%
Seoul
Mumbai
Shanghai
Sydney
Singapore
Hong Kong
Beijing
Tokyo
Moscow
Milan
Madrid
Brussels
Frankfurt
Stockholm
Paris
London
Sao Paulo
Los Angeles
Washington DC
Chicago
Boston
Mexico City
New York
Toronto
Stable
San Francisco
0%
Increased
Decreased
Regional vacancy rates based on 49 markets in the Americas, 24 markets in Europe and 24 markets in Asia Pacific.
Covers all office submarkets in each city. All grades except Asia and Latin America (Grade A only). Tokyo relates to CBD – 5 kus.
Source: JLL, May 2016
Global and Regional Office Vacancy Rates, 2009-2016
17.9%
18
Vacancy Rate (%)
16
14.7%
Americas
14.4%
14
11.9%
12
12.2%
GLOBAL
11.9%
10.9%
Asia Pacific
10.3%
10
8.6%
Europe
Q1 2016
Q4 2015
Q3 2015
Q2 2015
Q1 2015
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Q2 2011
Q1 2011
Q4 2010
Q3 2010
Q2 2010
Q1 2010
Q4 2009
8
44 markets in the Americas, 24 markets in Europe, 25 markets in Asia Pacific. Grade A space vacancy only for Asian markets
Source: JLL, May 2016
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23
Global Market Perspective, Second Quarter 2016
Office Rental Trends
Rental growth running at a healthy clip
Despite a slightly more subdued picture for global office demand during the first quarter, supply shortages and limited
new deliveries have kept the leasing environment highly competitive in many of the world’s dominant office markets.
Prime office rents across 26 major markets increased by a healthy 4.4% year-on-year in Q1 2016. They were led by
Dubai - DIFC (+20%), Stockholm (+17.8%), Sydney (+15.7%), Hong Kong (+14.7%), Los Angeles (+13.3%) and
Shanghai (+9.9%).
A pace of about 3%-4% annual rental growth is expected to continue this year, led by Sydney. By contrast Singapore,
Sao Paulo and Mexico City are projected to register further declines in 2016.
Landlords push up asking rents in the U.S.
Rental rates in the U.S. increased at their highest rate thus far in the cycle with a 3.2% rise during the first quarter alone.
But rental growth remains highly variable at a market and class level, with those markets near or within the peaking
phase of the cycle (e.g. San Francisco Bay) continuing to register accelerated rental growth during the first quarter.
Landlord confidence in U.S. suburban markets has also risen appreciably as the available supply of large, Class A
blocks has diminished, while submarkets with a strong supply of creative space or in mixed-use settings with high
amenities (such as Seattle’s Lake Union and New York’s SoHo) have consistently outperformed.
Over the course of 2016, U.S. rental rate increases will continue, but may slow as markets in the peaking phase of the
cycle reach an inflection point while welcoming new supply across markets. In the longer term, the eventual cooling
down of the labour market and further economic uncertainty globally will likely signal a slowdown in leasing dynamics
starting in 2017 and moving into 2018.
Rental growth at a four-year high in Europe
In Q1 2016, the European Office Rental Index rose by 3.4% year-on-year, the steepest increase in four years. For the
full-year 2016, rental growth for European offices is expected to reach around 2.5%.
Over the last 12 months most European office markets have joined the growth cycle, with just three markets still
reporting annual rental declines. In Paris, improved occupier sentiment pushed up rental levels for the third consecutive
quarter after a prolonged period in which prime rents were relatively volatile and not finding their direction. Demand for
prime office space in Germany remains exceptionally strong with Frankfurt recording a 2.8% increase in prime rents in
Q1, although rental growth rates are projected to ease from the high levels seen in 2015. Meanwhile, Barcelona and
Madrid also continued to see robust rental uplifts. Other European office markets that recorded prime rental growth in
Q1 were Budapest (+4.8%), Milan (+2.1%), and Stockholm (+1.9%).
Average rental growth moderates across Asia Pacific
Rental growth slowed in many Tier 1 markets across Asia Pacific at the start of the year. As a result, the region’s net
effective rents grew at a more moderate pace in Q1 2016 (0.6% quarter-on-quarter compared with 1.1% in Q4 2015).
Growth on a year-on-year basis averaged 3.1%.
Sydney’s rents continued to trend higher, recording the strongest quarterly uplift (+4.0%) in the region, although rents in
energy-related Australian markets such as Brisbane and Perth remained subdued in Q1. In Tokyo, rental growth
slowed despite tight vacancy, while rental decline accelerated in Singapore due to lacklustre demand and pressure from
a large supply pipeline. Low oil prices continue to weigh on energy-related markets such as Kuala Lumpur and Jakarta
where sustained weakness has turned to negative demand as many energy companies have cut headcounts and
surrendered workspace in order to control costs. A supply boom in Jakarta has compounded the situation there, putting
further downward pressure on rents.
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Global Market Perspective, Second Quarter 2016
Prime Offices – Rental Change, Q1 2015-Q1 2016
Dubai
Stockholm
Sydney
Hong Kong
Los Angeles
Shanghai
San Francisco
Boston
Madrid
Tokyo
Frankfurt
Milan
Beijing
Toronto
Chicago
London
Paris
Washington DC
New York
Seoul
Brussels
Mumbai
Mexico City
Moscow
Sao Paulo
Singapore
Americas
EMEA
Asia Pacific
% change
-20
-15
-10
-5
0
5
10
15
20
Based on rents for Grade A space in CBD or equivalent. In local currency.
Source: JLL, May 2016
Prime Offices – Rental Change, 2010-2016
10
Rental change (y-o-y %)
9
8
8.6%
7.7%
7
6
5
4
3.7%
3.9%
3-4%
2014
2015
2016
3
1.5%
2
0.8%
1
0
2010
2011
2012
2013
Prime office rental growth: unweighted average of 26 major markets.
Source: JLL, May 2016
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25
Global Market Perspective, Second Quarter 2016
Prime Offices – Projected Changes in Values, 2016
Capital Values
Rental Values
+ 10-20%
Sydney
Madrid, Stockholm
+ 5-10%
Dubai*, Boston, Chicago,
Los Angeles, San Francisco, Madrid
Hong Kong, Stockholm, Shanghai, Tokyo
Tokyo, Brussels, Sydney
Dubai*, Boston, Chicago
Los Angeles, San Francisco, Shanghai
+ 0-5%
London*, Frankfurt, Paris*
New York*, Toronto, Washington DC
Milan, Beijing, Brussels, Seoul
London*, Hong Kong, Milan
Paris*, New York*, Toronto
Washington DC, Beijing, Seoul
Mumbai, Frankfurt
- 0-5%
Mumbai, Mexico City, Moscow
Mexico City, Moscow
- 5-10%
Sao Paulo
Sao Paulo
- 10-20%
Singapore
Singapore
*New York – Midtown, London – West End, Paris – CBD, Dubai – DIFC. Nominal rates in local currency.
Source: JLL, May 2016
Prime Offices – Rental Clock, Q1 2016
Johannesburg
Toronto
Frankfurt, Seoul
Mexico City
Americas
Asia Pacific
EMEA
Houston
Singapore
Beijing, Dallas
San Francisco
London
Hong Kong, Shanghai, Los Angeles
Rental Growth
Slowing
Rental Values
Falling
Rental Growth
Accelerating
Rental Values
Bottoming Out
Tokyo
Berlin, Stockholm, New York
Boston
Sydney
Amsterdam, Madrid, Chicago
Delhi
Milan
Paris
Brussels
Moscow
Sao Paulo
Warsaw
Istanbul, Prague, Dubai
Zurich, Mumbai, Washington DC
Based on rents for Grade-A space in CBD or equivalent.
U.S. positions relate to the overall market
Source: JLL, May 2016
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26
Global Market Perspective, Second Quarter 2016
Retail Markets
U.S. retail market continues to tighten
While the U.S. retail vacancy rate stayed flat at 5.6% in the first quarter of 2016, demand has comfortably exceeded
supply in the past four quarters, resulting in vacancy compression of 40 basis points over the last year. Rents rose 0.5%
from the fourth quarter, and grew 1.5% year-on-year. Among U.S. shopping centre types, power centres are still seeing
the tightest overall market conditions, with total vacancy of 4.5%.
Prime space remains in high demand across Europe
International and domestic retailer demand remains focussed on Europe’s top cities. As a result, new pockets of retail
are appearing in the larger cities, while prime areas are growing in the smaller key cities. Dublin (4.4% quarter-onquarter) as well as UK cities including London (3.4%), Manchester (3.3%) and Birmingham (2.6%) showed the most
vigorous rental growth in Q1. Ireland appears to be bouncing back significantly, while robust international and domestic
demand is driving UK rental growth, with little regard being paid to uncertainty around the EU referendum. Growth was
also seen in Barcelona (2.0%) and Madrid (2.0%), as well as in Stockholm (1.0%). Prime high street rents in Dublin,
London, Paris and Rome along with the German cities of Berlin, Munich, Hamburg and Dusseldorf are predicted to
experience the healthiest growth to the end of 2017.
Retailer demand mixed in Asia; stable rental growth in most markets
Fast fashion retailers and F&B operators underpinned demand in China’s Tier 1 markets in Q1 2016, although there is
evidence that some fast fashion operators have witnessed a slowing performance, while some luxury retailers continued
to right-size. Hong Kong’s retail market continued to see ongoing weakness with retail sales trending lower, while
subdued consumer spending and a prolonged labour shortage in Singapore impeded retailer confidence. Retailer
demand remained robust in Tokyo’s prime shopping areas as international brands looked to secure higher profile
space. Generally stable market conditions were seen in India with limited availability in prime malls.
Average rental growth was relatively stable in Q1, but further declines were evident in Singapore and Hong Kong’s
high streets. In Australia, rents continued to rise in the CBD and bulky goods sub-sectors, while some signs of rental
growth are emerging across other formats as well. Over the short term, we see limited scope for much rental growth in
most markets, and Hong Kong is likely to experience the biggest decline in rents for high street space.
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27
Global Market Perspective, Second Quarter 2016
Prime Retail – Rental Clock, Q1 2016
Dubai
Hong Kong
Shanghai, Beijing
Singapore
Berlin
Tokyo
San Francisco , Houston
Miami, New York, Boston
Rental Growth
Slowing
Rental Values
Falling
Los Angeles
Madrid, Milan
London, Paris
Rental Growth
Accelerating
Rental Values
Bottoming Out
Mumbai
Delhi, Washington DC
Chicago
Moscow
Sydney
Americas EMEA Asia Pacific
Prime Industrial – Rental Clock, Q1 2016
Amsterdam
San Francisco
Shanghai
Singapore
Frankfurt
Hong Kong, Dallas
Beijing, Los Angeles, Chicago
Houston, Philadelphia
Rental Growth
Slowing
Rental Values
Falling
Tokyo, Atlanta, New York
London
Rental Growth
Accelerating
Rental Values
Bottoming Out
Moscow
Boston
Sydney
Madrid
Warsaw
Paris
Americas EMEA Asia Pacific
Relates to prime space. U.S. positions relate to the overall market
Source: JLL, May 2016
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28
Global Market Perspective, Second Quarter 2016
Industrial Warehousing Markets
U.S. industrial market forges ahead
The U.S. industrial vacancy rate is at a 15-year low, with the Q1 2016 vacancy rate at 6.3%, significantly lower than the
previous cycle’s low point (7.4% in 2007). Net absorption has been positive for six years running and warehouse asking
rents have increased for five years straight. Given the tight vacancy level, select larger blocks of available Class A
modern space choices remain limited and new construction is offering tenants more quality space options.
U.S. industrial outlook stays strong
The remainder of 2016 will see further speculative construction deliveries increasing across the U.S., but they will largely
remain concentrated in and around the nation’s major warehouse markets. Speculative deliveries are expected to total
12 million square metres during the year, which marks a 13.9% increase from 2015. However, despite new supply
increasing, the U.S. vacancy rate is anticipated to stay in the low 6% range through year-end.
European logistics markets remain a reliable source of strength
European logistics markets continue to benefit from structural changes in global supply chains with take-up this year
expected to remain at similar levels to the record volumes seen in 2015, although scarce supply has the potential to start
impacting overall activity.
Supply chain redesigns to support omni-channel retail concepts and to further shorten customer delivery times are a
major driver of new warehousing demand this year. Locations close to large city conurbations are, in particular,
expected to see rising demand for units in the small to medium size segment (between 5,000 to 30,000 square metres).
In addition, we are likely to see more occupiers starting to explore locations within cities. However, limited adequate
available units and significantly higher prices compared to traditional warehousing locations will keep occupational
warehousing activity in cities modest for the time being.
New warehousing space under construction in Europe reached a cyclical high at the start of 2016, marking the highest
level since 2008. Nevertheless, growing land scarcity (especially for larger units), resistance to grant planning
permission for large-scale warehouses and higher land prices for units close to cities could prevent further strong growth
in development activity. With a large share of take-up in new-build space in recent years, this could further impact
occupier choice.
Third-party logistics and e-commerce firms continue to bolster demand and rental growth in Asia Pacific
Third-party logistics providers, e-commerce companies and manufacturers remained active in China and Tokyo in the
first quarter of 2016, while there was more expansion and relocation activity of third-party logistics companies in Hong
Kong despite the ongoing weakness of the external trading market. In Singapore, business park demand continued to
be supported by R&D and IT firms while demand from the financial sector remained lacklustre.
Rents in Q1 were generally subdued across the Asia Pacific region, although rental growth accelerated in Shanghai as
new facilities saw higher-than-average rents. Flat to moderate growth in rents is projected for most markets over the
short term on the back of generally restrained export and retail sales growth.
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29
Global Market Perspective, Second Quarter 2016
Hotel Markets
2016: The year of hotels and hospitality sector M&A
The year started off with uncertainty related to stock market volatility, low oil prices impacting numerous resource-driven
markets and economies, and news about slowing economic growth in China, which all made investors and lenders more
cautious.
As expected, global hotel transactions activity was subdued during the first quarter of 2016 compared to the stellar levels
seen in early 2015. Hotel transactions declined by 58% year-on-year during the first three months of 2016, totalling
approximately US$10.3 billion.
Hotel Investment Volumes, Q1 2016 v Q1 2015
US$ Billions
Q1 2016
Q1 2015
% Change
Americas
EMEA
Asia Pacific
Total
5.8
3.1
1.3
10.3
14.8
7.7
1.8
24.4
-60%
-60%
-25%
-58%
Volumes and % Change have been rounded
Source: JLL, May 2016
Some of the aforementioned macro issues have settled down since mid-March and investor sentiment is showing
renewed signs of improvement. Transactions activity in Q2 is expected to pick up and the second half of 2016 stands to
be very busy, notwithstanding any demand shocks. Overall, volumes will be less frothy in 2016 but core investors will
feel more comfortable given that some transactions and valuations in 2015 had moved ahead of market fundamentals.
In Q1 2016, 21% of total hotel investment flowed into primary markets, compared to 31% during the same period in
2015, confirming the shift of interest towards secondary hotel investment markets. However, appetite for trophy assets
in key markets remains high with buyer demand from the Middle East and China.
The share of cross-border purchases accounted for less than one-fifth of total volumes in the first quarter, down from
40% market share in Q1 2015. As the year progresses, the percentage of cross-border purchases is expected to ratchet
up, driven in part by Anbang Insurance Group’s announced purchase of Strategic Hotels & Resorts for approximately
US$6.5 billion.
Home-sharing sites, such as Airbnb and HomeAway, continue to expand their footprint in the lodging market, moving
hotel companies to examine opportunities to increase competitiveness. Improving cost effectiveness and distribution
through acquisitions is one of many options hotel companies consider in order to gain leverage against online travel
agencies and technology outfits.
The competitive bidding for Starwood Hotels & Resorts, as well as AccorHotels’ recently announced acquisition of
Onefinestay, confirm the appeal of mergers and acquisitions to drive scale, further encouraging other hotel companies to
explore similar options. Moreover, Asian corporations are keen to purchase European and U.S. hotel management
platforms to secure vertical integration for outbound travellers from Asia.
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Global Market Perspective, Second Quarter 2016
Private equity groups remain key buyers
Private equity and investment funds remained the dominant buyer group during Q1 2016, accounting for 28% of total
volumes, with Blackstone among the most active. Eight of the top ten private equity buyers exclusively acquired assets
in their home country, marking a slowdown in outbound investment by U.S.-based private equity funds.
Non-traded and public real estate investment trusts (REITs) were the second most active buyer type, securing 24% of
total volumes, with REITs based in the United States, Japan and Singapore accounting for the majority of acquisitions.
Developers and property companies ranked third, representing 16% of deal volumes, while hotel operators reduced their
acquisition spending, securing 11% of transactions compared to 21% in Q1 2015.
Acquisition activity from high-net-worth individuals remained stable, while sovereign wealth funds paused their spending,
having little deployment requirements or market timing pressure, and will deploy capital when they are particularly
attracted to a specific property or deal.
Continued strong interest in prime hotel real estate markets across EMEA
Hotel transaction volumes in Europe, the Middle East and Africa (EMEA) reached US$3.1 billion in Q1 2016, largely
driven by single-asset deals which amounted to 75% of total volumes. Portfolio transactions accounted for the
remaining 25%, having fallen by 85% compared to Q1 2015, marking the biggest decline in portfolio transaction levels
across the three global regions.
Within EMEA, interest in primary destinations remains strong, with key hotel investment markets accounting for 30% of
deal volumes in Q1 2016 compared to 15% in Q1 2015. London secured 60% of all hotel investments in the UK, while
Germany’s key cities accounted for 60% of all German transactions. Hotel transactions in Madrid and Barcelona
accounted for nearly two-thirds of total investment in Spain. At a country level, the UK captured 34% of investments in
EMEA totalling US$ 1.1 billion, followed by Germany (27%), Spain (14%) and France (6%).
The most prominent buyers in EMEA during Q1 2016 were investment funds and private equity with a buyer share of
22%, followed by institutional investors (21%) and developers and property companies (16%). The largest net buyers of
hotel real estate were institutional investors with US$432 million, while developers and property companies, as well as
investment funds and private equity, were net sellers with US$528 million and US$393 million respectively.
Middle Eastern investors, although still eager to acquire, were more cautious, capturing 10% of total volumes within
EMEA. Capital from the Middle East was invested in the UK and Central Europe, while Asian money, accounting for 4%
of EMEA volumes, targeted assets in South-Western Europe.
U.S. accounts for half of global volumes
As was forecast, the Americas experienced a notable softening in hotel investment volumes from the stellar levels
recorded during Q1 2015 with transactions totalling US$5.8 billion during the first three months of 2016. Portfolio
transactions declined by a wide margin; however, announced multi-property acquisitions, such as Anbang’s purchase of
Strategic Hotels & Resorts, are likely to significantly increase portfolio deal volumes in the coming months. Single-asset
sales fell to US$4.8 billion in the first quarter, with key transactions including the sale of the Seattle Marriott Bellevue and
Ascott Residence Trust’s purchase of the Sheraton Hotel Tribeca New York City.
The U.S. secured 50% of total investment globally in Q1, confirming its status as the single most liquid country in terms
of transaction volumes. 22% of capital was invested in the country’s key hotel markets, including Boston, Chicago, New
York and San Diego, compared to 42% during the same period of last year when gateway cities accounted for the bulk
of sales.
Private equity and investment funds were the largest buyer group, accounting for 34% of all purchases. Non-traded
REITs were the second most active group with a buyer share of 18%. Public REITs’ share prices have been depressed
and they have focused on repurchasing shares rather than making large acquisitions. Their buyer share declined
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31
Global Market Perspective, Second Quarter 2016
considerably from previous years to reach 10% during Q1 2016. REITs are expected to be net sellers in 2016,
notwithstanding the fact that stock prices have seen some improvement in recent weeks.
The first quarter saw some divergence in buyer and seller pricing expectations, but we expect the realignment necessary
to reignite some transaction activity to occur over the coming months, consequently improving deal volumes later in the
year.
Japan exceeds investment expectations
Following one of the strongest years for Asia Pacific in terms of hotel transactions, the region saw volumes drop 25% in
the first quarter to total US$1.3 billion. As projected, Japan accounted for the lion’s share of investment, capturing 75%
of total volumes, followed by Australia with 19% and India with 4%. In addition to Japan, it is expected that South
Korea, Vietnam and Cambodia will remain sought-after markets. The transactions markets have been relatively quiet
in mainland China, Macau and Hong Kong, while Singapore, Thailand and Indonesia are also likely to face some
headwinds during the next months.
Driven by activity in Japan, portfolio sales rose by 15%, accounting for over 50% of volumes across the region. Portfolio
acquisitions by REIT Invincible Investment Corporation, among others in Japan, pushed portfolio transactions to US$637
million. Single-asset transactions fell 48% and notable deals included the Loisir Hotel Spa Tower Naha sold by Morgan
Stanley Japan Group for US$170 million, and the acquisition of an 81% stake in the Hyatt Regency Pune for US$54
million by Indian SAMHI.
REITs were the most active buyers, representing 70% of hotel real estate investment in Asia Pacific during Q1 2016.
Investment funds and private equity firms accounted for 20% of the market, followed by developers and property
companies. Investment funds and private equity have been the most active sellers, making up nearly 70% of the sellside with US$822 million.
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32
Global Market Perspective, Second Quarter 2016
Residential Markets
U.S. rental apartments see surge in rental growth despite wave of completions
Rental growth accelerated meaningfully in the U.S. multifamily market in the first quarter, as national rental levels
showed gains of 4.7% year-on-year. This figure is an increase of 80 basis points on the year and 10 basis points
quarter-on-quarter, representing a peak for this cycle and the largest rise since 2007’s 4.7% growth figure. Aside from
New York’s notable 250 basis point increase to 6.0% rental growth year-on-year, the greatest uplifts were evident in the
Western and Southeastern regions of the country.
As the development pipeline across the country continues to expand, the U.S. vacancy rate has crept up 10 basis points
from 2015, to 4.4%. The greatest increases in vacancy across markets are all directly tied to markets that have seen
heightened and sustained development activity going back to 2014. Among these markets, Austin’s completion rate
ending 2015 was 4.6% of inventory, well above the national average of 1.8%. As a result, Austin has seen a 100 basis
point increase in vacancy year-on-year, with a 6.5% vacancy rate. Boston and Minneapolis are other markets working
to churn through short-run completion gains to inventory. Absorption is maintaining its strength nationally, remaining
unchanged at 1.6% of inventory for 2015.
Uncertainty impacts UK investment activity
The UK housing market is maintaining a steady performance, with year-on-year price growth holding at 5-6% for most
indices at the start of the year. As ever there are large underlying variations, notably in London where prime values
continue to rebase, dipping marginally into negative territory. In contrast, price growth in outer London is the strongest in
the UK, pushing closer to 8% pa. Construction in London has begun to ebb, hit by a range of factors including weaker
demand, rising build costs and an unfavourable policy backdrop.
UK residential investment markets are experiencing the first slowing of market activity in several years, brought on by
Brexit hesitations. In addition, the Chancellor’s attempts to quell enthusiasm from buy-to-let investors by increasing
stamp duty charges by 3% also included large-scale investment, to the surprise of the sector. Most investors remain
committed to expansion into the sector, but the downside risk brought on by these factors is constraining the willingness
of buyers to pay ever sharper pricing. Forward-funding deals remain the most popular due to the lack of standing stock,
with notable transactions by LaSalle Investment Management and APG/Qatari Diar in Manchester in the first quarter.
Germany investment market calmer after exceptional 2015
As expected, calm returned to the residential investment market in Germany in Q1 2016, following an exceptional 2015.
Notably, the proposed merger of Vonovia and Deutsche Wohnen, the two biggest companies in the industry, collapsed
in January. Slightly cautious behaviour is also being observed in the residential investment market and, at €2.1 billion
and 21,600 apartments, the volume traded in Q1 was more than 25% down on the result for the same period in 2015.
However, there has also clearly been a rise in the number of smaller transactions with lot sizes of less than €100 million
per deal, with the number increasing by 30% and the volume by 36% compared to Q1 2015.
The biggest transaction in the first quarter was Corestate’s sale of approximately 2,700 apartments for €100 million to an
international opportunistic investor. Major portfolios were also sold by Vonovia, Deutsche Wohnen and UK-based
Grainger and, as a result, the proportion of deals accounted for by foreign purchasers increased to around 30%, and by
foreign sellers, to over 40% of the total investment volume. Around a quarter of the total German transaction volume in
Q1 was generated in Berlin, followed by Hamburg (€205 million) and Munich (€180 million).
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Global Market Perspective, Second Quarter 2016
Netherlands sales activity increases
Residential sales activity in the Netherlands increased by 20% in Q1 2016 on a year earlier, while the number of
available properties for sale was down 9% at 153,000. Meanwhile, average house prices rose by 5.5% to €225,000 over
the past 12 months. Residential investment volumes amounted to €512 million in Q1, mainly due to two large portfolio
deals, including a 1,275 dwellings purchase by Patrizia Immobilien for approximately €153 million.
Demand stable in Portugal
The residential market in Portugal continues to maintain a steady pace of activity. The Golden Visa programme has
seen stronger take-up after declines in 2015, registering a new peak for the past three years in March. Prices are also
increasing in Lisbon, with growth of 1% over the first quarter, and this is expected to continue in 2016.
France begins 2016 on a quiet note
2016 has begun quietly in France, with only single-asset residential sales in evidence. There are three key trends worth
noting in the French residential investment market. First, institutional investors have returned as the spread between
commercial and residential yields has declined sharply, supported by the desire to diversify commercial exposure.
Secondly, investors are increasingly interested in senior serviced housing, particularly through new-build development
projects. Finally, the ongoing lack of stock remains a challenge.
Sales activity decreases in Dubai
Residential sales volumes have continued to decline in Dubai as investors become more cautious and high initial
deposits price many buyers out of the market. Data from the Dubai Land Department shows a substantial (31%) decline
in the volume of activity over the first quarter of 2016 (compared to the same period in 2015). Lower transaction
volumes have been one factor contributing to the decrease in residential prices, where average prices have fallen by
11% for villas and 10% for apartments over the past year. Rentals in Dubai have held up more strongly than sale prices,
but average rents also declined by around 5% over the year.
Rate cut supports sales in China; most other Asia Pacific markets less active
Policy restrictions remained in place in various markets across Asia during the first quarter. Sales activity was strong in
China’s Tier 1 markets, supported by an accommodative policy stance; however, local governments in Shanghai and
Shenzhen tightened home purchase restrictions towards the quarter-end to rein in surging home prices. In Hong Kong,
overall home sales plummeted during Q1 owing to a lack of new launches and cautious buyers. Sales volumes
increased in Singapore with a newly-launched project witnessing good demand due to affordable pricing.
At the same time, leasing demand was generally subdued in key markets including China, Hong Kong and Singapore.
Rental growth was limited in most Asian markets, with rents rising in slightly more than half of all monitored markets and
a similar trend is expected to persist in the short term.
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34
Global Market Perspective, Second Quarter 2016
Key Investment Transactions in Q1 2016
Europe, Middle East and Africa
Country
Belgium
City
Brussels
Property
Ellipse
Sector
Office
Sales price
US$m Comments
237
AG Real Estate has completed the sale of the Ellipse building to the Taiwanese
investor Fubon Life Insurance. The building, located in Brussels’ North District, was
built in 2006 by AG Real Estate and Immobel (CIB). The building has 50,342 sq m
of office and mixed-use space, 2,573 sq m for archives and 279 parking spaces. It
is fully leased to two public entities: the Flemish Community, which occupies about
90% of the building, and IBPT (l’Institut Belge des Services Postaux et des
Télécommunications), the remainder. The building offers a guaranteed cash flow for
nine years.
France
Paris
2-8 Rue Ancelle Office
299
Unibail-Rodamco has sold the office building located on 2-8 rue Ancelle in Neuillysur-Seine to a JV between ACM Vie SA and funds managed by Amundi Immobilier
for €271 million. The 17,200 sq m office building is let to CMS Bureau Francis
Lefebvre for a 12-year fixed period, and is located between La Défense and the
CBD.
Germany
Frankfurt
Villa Kennedy
93
German Estate Group and Commerz Real Investment have concluded the salepurchase agreement of the 163-room Villa Kennedy, a Rocco Forte Hotel.
591
Blackstone has acquired 36 logistics assets with c. 1 million sq m of leasable
space. The properties are located primarily in Germany (24), as well as in Hungary
(5), Romania (3), Poland (2), Slovakia (1) and Russia (1). The transaction also
included three development projects in Hamburg, Bucharest and Ploiesti
(Romania), as well as land reserves. Blackstone will integrate all the assets into
Logicor, its European logistics platform.
496
Partners Group has acquired a Nordic portfolio from Brunswick Real Estate (BRE)
for €450 million. It consists of the remaining assets in Sveafastigheter Fund III,
namely 97 retail, office and hotel properties across Sweden and Finland, with a total
leasable area of 360,000 sq m.
Hotels
Various
Immofinanz
Portfolio
Various
Sveafastigheter
Mixed
Fund III Portfolio
Multiple
Various
Delta City
Portfolio
Retail
224
JLL has advised Delta Real Estate on the sale of two Delta City shopping centres in
Belgrade, Serbia and Podgorica, Montenegro for a total of €203 million to a JV
between South African Hyprop, the country's largest listed specialised shopping
centre REIT, and Homestead Funds. This transaction represents the largest singleasset deal in South-Eastern Europe in five years.
Multiple
Various
Tivoli Portfolio
Hotels
119
Thailand’s Minor Hotel Group has completed the acquisition of the six-hotel, 1,700
room Tivoli portfolio comprising four assets in Portugal and two in Brazil from
Espirito Santo Investment.
Multiple
Multiple
Industrial
Russia
Moscow
Evolution Tower Office
800
Transneft, the Russian oil giant, has bought Evolution Tower in the Moscow City
business district for $800 million from Snegiri Development. The distinctive tower,
which resembles a strand of twisting DNA, contains 79,053 sq m of office space,
a shopping centre and car park.
Spain
Madrid
Hotel Villa
Magna
194
Sodim SA has agreed to the sale of the independent 150-room 5-star hotel to
Turkey’s Dogus Group.
Spain
Various
Topland Eroski
Portfolio
Retail
405
Invesco Real Estate has acquired a portfolio of hypermarkets in Northern Spain for
its open-ended pan-European fund for €358 million as part of a sale & leaseback
deal. The portfolio consists of 11 properties across the Basque Country and
Navarra regions with a total gross leasable area of around 136,000 sq m. The sites
are 100% leased to the Eroski Group, one of Spain’s largest retailers.
Sweden
Various
Pandox Portfolio Hotels
100
Sweden’s Pandox has completed the sale of an eight-hotel portfolio, including
brands such as Scandic Hotels and First Hotels, to Midstar.
UK
Birmingham
Grand Central
Retail
Shopping Centre
479
Hammerson has acquired the new Grand Central shopping centre for £335 million.
Opened in September 2015, the centre provides 435,000 sq ft of high-quality prime
retail space, anchored by John Lewis. It was developed by Network Rail and
Birmingham City Council as part of the £750 million New Street Station
regeneration project.
UK
London
Club Quarters
London
Hotels
258
UK-based Chelsfield Group has sold a two-hotel portfolio consisting of Club
Quarters Gracechurch Street and Club Quarters St. Paul's to a JV between AXA
Real Estate Investment Managers and Danish pension fund ATP Group.
UK
London
Hilton London
Wembley
Hotels
142
Al Habtoor Group, a Dubai-based conglomerate, has completed the acquisition of
the 361-room hotel from Oaktree Capital Management.
Hotels
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35
Global Market Perspective, Second Quarter 2016
Country
City
UK
Various
Property
Ardent UK
Portfolio
Sector
Sales price
US$m Comments
Student
Housing
Mapletree Investments, the property arm of Singapore’s state investment fund
Temasek, has bought a portfolio of UK student accommodation for £417 million in
its first venture into the sector. The portfolio, which was sold by International Mutual
Fund, comprises 25 buildings with more than 5,500 beds in cities including London,
Edinburgh and Manchester.
597
Asia Pacific
Country
Australia
City
Property
Melbourne
Oxford Cold
Storage Portfolio
Sector
Sales
price
US$m Comments
Industrial
152
LOGOS Property Group has completed the largest-ever cold storage facility
purchase in Australia by securing the privately-owned Oxford Cold Storage
portfolio from AB Oxford. The property portfolio, with a 25-year triple net lease,
traded on a NPI yield of about 6.75%.
Australia
Perth
Forrest Centre
Office
159
YT International, an Australian subsidiary of Perth Upper China Hotel, has
purchased the property from the Insurance Commission of Western Australia
(ICWA) for A$220 million. Forrest Centre sits at the western end of the CBD
and comprises two grade-A office buildings with a total NLA of about 31,000
sq m.
Australia
Sydney
Woolworths
Headquarters
Office
243
Mirvac Group has sold its 44,800 sq m office headquarters located at
1 Woolworths Way to Inmark Asset Management for A$336 million. The
property has a long-term lease signed recently with Woolworths until 2031 and
is 100% occupied with an NPI yield of about 6.1%.
227
Ascendas has made its maiden office purchase in Australia through the
acquisition from Townwood of a 20-storey office building located on 100
Arthur Street. Innovation Place has a total NLA of 27,196 sq m with a WALE
of more than four years. Its anchor tenant NBN Co., which occupies about
60% of the building, recently extended its lease until 2020.
Australia
Sydney
Innovation Place
Office
Australia
Sydney
77 King Street
Office
115
Keppel REIT has divested its entire stake in 77 King Street for A$160 million
to Invesco. The sale price is about 27% above the latest valuation of A$126
million on 31 July 2015 and will result in a divestment gain of about A$28
million. The property is located in the CBD and offers around 14,000 sq m of
NLA over 18 levels of offices and 2 levels of retail space.
China
Shanghai
East Ocean Center Office
375
CLSA, a Chinese securities firm, has acquired East Ocean Center from its real
estate fund CLSA Capital Partners. The building, located in the commercial
and business heart of the Huangpu district, was completed in 1997 and
comprises two office towers with a total GFA of circa 78,000 sq m.
China
Shanghai
Waterfront Place
Blocks E & G
116
Pramerica Real Estate Investors has purchased Waterfront Place located in
the Changfeng Park area from ARA Asset Management - ARA Asia Dragon
Fund II.
Hong Kong
Dah Sing Financial
Centre
Hong Kong
Hong Kong
Trade and Industry
Department Tower
India
Mumbai
India
Pune
Hong Kong
Office
1,286
China Everbright Group, a state-owned financial services company, has
acquired a top-tier office building from Sea Group at an estimated price of
HK$24,993 per sq ft. The estimated spot transaction yield is about 3%. The
office tower, located in the Wan Chai district, is reportedly to be used as office
space by the group.
Office
760
Link REIT has acquired the office tower located in Mong Kok from the Hong
Kong Government. The property has about 40 years left under the Land Grant
Scheme commencing 30 May 1980. It comprises 2 basement floors, 4 storeys
of retail podium and 15 floors of office space with a total GFA of about 26,400
sq m.
Viviana Mall
Retail
148
Sheth Corporation has sold a 50% equity stake in the mall located on the
outskirts of the city to Singapore's sovereign wealth fund GIC. Viviana Mall is
one of the largest malls in India with a GLA of 1 million sq ft and is 100%
occupied by strong anchor tenants and renowned brands.
Hyatt Regency
Pune (81% Stake)
Hotels
54
Hotel development and investment firm SAMHI has purchased an 81% stake
in the 222-room and 102-serviced apartment luxury property. The remaining
19% is owned by Vascon Group.
Office
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36
Global Market Perspective, Second Quarter 2016
Sales
price
US$m Comments
Country
City
Property
Sector
Japan
Chiba
NTT Makuhari
Building
Office
187
NTT Urban Development has sold the large-scale office building located at
Makuhari, Chiba to its private investment corporation. The property, which
was built in 1993, has a total GFA of about 170,500 sq m and is leased to
companies related to NTT.
Japan
Chiba
Hanwa Ryutsu
Center Tokyo HQ
Industrial
164
Hanwa Logistics Tokyo has sold a part of its headquarters building, located in
the Chiba Bay area, to one of its related entities. Following the transfer,
Hanwa will lease back the asset as a distribution warehouse for the immediate
future while its headquarters will move to Gunma prefecture.
Japan
Kashiwa-shi
The Crest Hotel
Hotels
52
Meiji Yasuda Life Insurance Company has sold the 87-room hotel to Kenedix
Advisors.
Japan
Okinawa
Loisir Hotel & Spa
Tower Naha
Hotel
174
United Urban Investment Corporation has acquired the full-service hotel from
Morgan Stanley. The hotel is one of the largest in Okinawa and has 602
rooms. It is managed by Solare Hotels and Resorts and the estimated NOI
yield is 5.9%.
Japan
Various
Logiport REIT
Portfolio
Industrial
1,401
LaSalle Logiport REIT has acquired a portfolio which consists of eight
industrial assets from One M Logistics G.K. The deal includes the acquisition
of an 100% equity stake in six assets and partial stakes in Logiport Hashimoto
(55%) and Logiport Sagamihara (51%). In total, the portfolio comprises a total
GFA of about 936,000 sq m and tenants include third-party logistic firms.
Japan
Various
Invincible Portfolio
Hotel
535
Invincible Investment Corporation has purchased four hotel properties from its
sponsor Fortress Investment Group. The assets are located in Tokyo, Tochigi
and Fukuoka with a total of 965 rooms. The average occupancy rate and daily
rate stood at 91.7% and JPY 14,623 in 2015.
Japan
Various
Nippon Prologis
REIT Portfolio
Mixed
366
Nippon Prologis REIT has purchased four industrial properties from its
sponsor Prologis. The assets are located in Saitama, Ibaraki, Osaka and
Miyagi with a total acquired GFA of about 215,000 sq m. Major tenants include
a pharmaceutical company and third-party logistic firms.
South Korea
Seoul
Jongno Tower
Office
320
Samsung Life and Youngbo have sold the 33-storey office tower which was
completed in 1999 and is located in the Jongno district.
South Korea
Seoul
CJ E&M Center
Office
139
CJ E&M Corporation, a South Korean entertainment and media contents
company, has purchased the headquarters building from four of its
subsidiaries in a related-party transaction.
Taipei
China Bills Finance
Corporation
Office
Headquarters
Building
148
Wisdom Marine Group has bought the headquarters building from Ting Hsin
International Group for about NT$4.9 billion.
383
Keangnam Enterprises has sold Vietnam's tallest building to AON Holdings, a
mid-sized South Korea financial group. Samjong KPMG, the principal
underwriter for selling debts of Landmakr 72, selected AON as the preferred
bidder for the deal. There was keen interest by other parties including
Goldman Sachs and Hana Financial Investment.
Taiwan
Vietnam
Hanoi
Keangnam Hanoi
Landmark Tower
Mixed
Americas
Sales
price
US$m
Country
City
Property
Sector
Brazil
Sao Paulo
Thera
Corporate
Office
60
Barzel Properties has acquired a 45% stake in this nearly 13,000 sq m office
asset located in the Berrini submarket from CCP.
Brazil
Sao Paulo
Cidade Jardim
Office
33
BR Properties has sold a 50% interest in its more than 7,000 sq m office
property located in the Itaim submarket to Brookfield Asset Management.
Canada
Montreal
Les Galeries de
Retail
Lanaudière
55
Desjardins Group has purchased a 50% interest in the roughly 25,000 sq m
retail property in the Terrebonne submarket from First Capital Realty.
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved
Comments
37
Global Market Perspective, Second Quarter 2016
Sales
price
US$m
Country
City
Property
Sector
Canada
Toronto
Park Place
Retail
104
Canada Post has acquired a 50% stake in this circa 49,000 sq m shopping
centre located in the Barrie submarket from North American.
Canada
Toronto
12333 Airport
Road
Industrial
47
Bentall Kennedy has purchased the nearly 53,000 sq m warehouse asset in the
Caledon submarket from Hopewell Development Corporation.
Canada
Vancouver
Royal Centre
Office
312
Brookfield Canada Office Properties has sold the 36-storey, nearly 55,000 sq m
CBD office asset to German investor Klaus-Michael Kühne at a reported initial
yield of 3.7%.
U.S.
Atlanta
Fairburn
Logistics
Center,
Building 1
Industrial
120
TPA Group has sold this 105,000 sq m industrial 'flex' asset in Fairburn to
Deutsche AWM.
U.S.
Boston
415 Main Street Office
105
The Massachusetts Institute of Technology has purchased the 13-storey, over21,000 sq m Cambridge office property from Boston Properties.
U.S.
Boston
Hotel
Commonwealth Hotels
Boston
125
Xenia Hotels & Resorts, a non-traded U.S. REIT, has completed the acquisition
of the 245-room hotel from Fundamental Advisors. The property, a luxury
independent lifestyle hotel, has recently undergone a significant expansion
programme and will continue to be managed by Sage Hospitality.
U.S.
Clearwater
Hyatt Regency
Clearwater
Beach
Hotels
120
The resort hotel has been sold to Westmont Hospitality Group. The seller,
Convergent Capital Partners, has owned the 242-room beachfront property for
about three years.
U.S.
Denver
Cherry Creek
Shopping
Center
Retail
170
A JV of Invesco Real Estate and OliverMcMillan has acquired the 31,000 sq m
lifestyle centre from AmCap Inc. and Hart Realty Advisors.
U.S.
Los Angeles
El Monte
Shopping and
Automotive
Center
Retail
85
Merlone Geier Partners has acquired the nearly 44,000 sq m retail asset in El
Monte from Decron Management Corporation.
U.S.
Minneapolis
Lawson
Commons
Office
68
TIER REIT has sold this roughly 41,000 sq m office property located in central
St. Paul to Frauenshuh Companies.
U.S.
New York
787 Seventh
Avenue
Office
1,941
U.S.
New York
Sheraton
Tribeca New
York Hotel
Hotels
158
Magna Hospitality Group, a privately-held hotel real estate investment firm, has
concluded the sale of the hotel to Singapore-based Ascott REIT. The purchase
of the 369-room hotel in the heart of Tribeca is Ascott Residence Trust's
second acquisition in New York in less than a year.
U.S.
Seattle
Seattle Marriott
Hotels
Bellevue
187
U.S.-based Watermark Capital Partners, a non-traded REIT, has completed the
acquisition of the 384-room hotel from White Lodging. The newly-developed
property opened in July 2015 and is located in Bellevue, Washington.
U.S.
Seattle
West 8th
Office
370
Deutsche AWM has acquired the 28-storey, approximately 46,000 sq m CBD
office tower, at a reported 4.2% initial yield, from AEW Capital.
U.S.
Silicon Valley
Eastridge Mall
Retail
225
A JV of Pacific Retail Capital Partners and Silverpeak Real Estate Partners has
purchased this 73,000 sq m mall from REIT General Growth Properties at a
reported 6.75% initial yield.
U.S.
Washington, DC
733 10th and G Office
180
A JV of Investcorp, ScanlanKemperBard and Carbyne Property Group has
purchased the nearly 16,000 sq m CBD office asset at a reported 4.6% initial
yield from Jamestown.
U.S.
Various
Garrison Hotel
Portfolio
137
Garrison Investment Group has completed the sale of a 10-hotel portfolio to a
JV between Gatehouse Capital, Waramaug Hospitality and Interstate Hotels &
Resorts. The portfolio deal includes over 1,100 rooms.
Hotels
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved
Comments
A JV of CalPERS and Commonwealth Partners has purchased the 152,000
sq m office asset from AXA Group at a reported 4.6% initial yield.
38
Global Market Perspective, Second Quarter 2016
Illustrative Office Occupational Transactions in Q1 2016
Europe
Country
City
Property
Tenant
Industry Sector
Floorpsace
sq m
France
Paris
Boulevard Richelieu, Rueil-Malmaison
Novartis
Pharmaceuticals
42,000
France
Paris
10 Rue Delarivière Lefoulon - Puteaux
(La Défense)
Deloitte
Business Services
30,500
France
Paris
Rue de la Gare - Paris 19
BNP
Banking & Financial Services
24,100
France
Paris
Rue Cardinet - Paris 17
Siaci Saint Honoré
Banking & Financial Services
14,300
France
Paris
41 Rue Ybry - Neuilly-sur-Seine
Sephora
Trade
13,400
Germany
Berlin
Gesundheitsministerium
Bundesministerium für
Gesundheit
Public Administration
28,900
Germany
Frankfurt
Taunustor
ECB
Banking & Financial Services
17,800
Germany
Frankfurt
Frankfurter Strasse
SAP
ITES
9,000
Germany
Hamburg
Wandsbeker Zollstrasse
Confidential
Banking & Financial Services
6,500
Germany
Cologne
Köln Triangle
Confidential
Public Administration
12,900
Germany
Munich
Neubau Imtech
MorphoSys
Pharmaceuticals
12,000
Germany
Stuttgart
Ruppmannstrasse
Confidential
Manufacturing
13,800
Russia
Moscow
Evolution Tower
Transneft
Mining & Exploration
79,053
Russia
Moscow
Kuntsevo Plaza
Philip Morris
Trade
4,784
Russia
Moscow
Port Plaza
REA Kapitalnoe stroitelstvo
Construction
3,720
Russia
Moscow
Omega 2 - Simonov Plaza
JSC Rusatom Overseas
Infrastructure
3,010
UK
London
30 Gresham Street
Investec
Banking & Financial Services
13,928
UK
London
100 Bishopsgate
Brookfield
Banking & Financial Services
10,971
UK
London
Aldgate Tower
AECOM
Business Services
8,072
UK
London
R7 Handyside Street
New Look
Trade
11,799
UK
London
2 Eastbourne Terrace
WeWork
Construction & Real Estate
9,941
UK
London
Copyright Building
Capita
ITES
8,096
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39
Global Market Perspective, Second Quarter 2016
Asia Pacific
Country
City
Property
Tenant
Industry Sector
Floorpsace
sq m
Australia
Melbourne
562-574 Bourke Street
Victoria Legal Aid
Public Administration
8,000
Australia
Sydney
255 Pitt Street
Commonwealth Bank of
Australia
Banking & Financial Services
7,700
China
Beijing
Yuetannanjie Tower 1
Zhongtou Zhengquan
Banking & Financial Services
1,800
China
Shanghai
Two ICC
LEGO
Trade
4,400
Hong Kong
Hong Kong
Metroplaza Tower 1
Prudential
Banking & Financial Services
5,100
India
Delhi
Orient Bestech Business Tower
Grey Orange
ITES
12,200
India
Mumbai
Empire Plaza II
WPP Marketing
Business Services
3,800
Japan
Tokyo
Tokyo Nihonbashi Tower
Marubeni Corporation
Trade
30,000*
Malaysia
Kuala Lumpur
Menara Hap Seng 2
Mitsui & Co
Trade
2,800
South Korea
Seoul
D Tower
Société Générale
Banking & Financial Services
2,200
*JLL estimate
Americas
Country
City
Property
Tenant
Industry Sector
Floorpsace
sq m
Brazil
São Paulo
São Paulo Corporate
Bain & Company
Business Services
5,064
Brazil
Rio de Janeiro
Candelária 62
Defensoria Pública da União
Public Administration
6,401
Canada
Montreal
1050 Beaver Hall
Desjardins
Banking & Financial Services
10,993
Canada
Montreal
Quartier Evolution
Traffic Tech
Logistics & Transportation
8,826
Canada
Toronto
777 Bay Street
Infrastructure Ontario
Public Administration
43,107
Canada
Toronto
Royal Bank Plaza - North Tower
RBC
Banking & Financial Services
40,087
Canada
Toronto
315 Front Street
Infrastructure Ontario
Public Administration
26,291
Canada
Toronto
One York Street
CIBC Mellon
Banking & Financial Services
12,566
U.S.
Austin
13011 McCallen Pass
Home Depot
Trade
18,395
U.S.
Boston
900 Chelmsford Street
Kronos
Business Services
34,450
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved
40
Global Market Perspective, Second Quarter 2016
Floorpsace
sq m
Country
City
Property
Tenant
Industry Sector
U.S.
Boston
100 Federal Street
Putnam Investments
Banking & Financial Services
23,412
U.S.
Chicago
151 North Franklin Street
CNA Financial
Banking & Financial Services
25,548
U.S.
Houston
609 Main Street
United Airlines
Transportation
20,903
U.S.
New York
1095 Avenue of the Americas
Salesforce
ITES
18,829
U.S.
New York
425 Park Avenue
Citadel
Banking & Financial Services
18,581
U.S.
Orange County
2401-2421 N Glassell Street
Volt
Business Services
17,652
U.S.
Silicon Valley
55 W Trimble/2610-2630 Orchard
Parkway
Toshiba
ITES
20,313
U.S.
Washington DC 7900 Harkins Road
2U
ITES
23,500
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016.
This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has
been based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any
views expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward-looking involve known and unknown risks and
uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from
the views expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved
41